Product Pricing Issues and Strategies

Another good article on BNET (can you tell I like this website). A lot of it is common sense. The helpful thing about the BNET website is how they present the article. It has a very good layout which highlights the main points. This particular article talks about issues and strategies regarding product pricing.

Understanding Pricing Issues on BNET

Small Business Advice - Vacation Policies

Good article with tips on establishing a vacation policy to keep your small business running smoothly:

Vacation Policies Needed for Small Biz

AP Online via NewsEdge Corporation : NEW YORK_Holiday weeks and peak vacation periods can be a trying time for small business owners, especially if they haven't formulated a policy about employee time off. This scenario will probably sound painfully familiar to many company owners: Several staffers all want the same day or week off, and when the boss says yes to some and no to others, there are hard feelings, complaints of favoritism, maybe even someone calling out sick in protest. Human resources consultants say there are ways to resolve this kind of crisis _ although as in many other situations small business owners must contend with, it's best to plan in advance and prevent such a predicament in the first place. Rob Wilson, president of Employco, a Chicago-based human resources firm, said that if too many people want the same time off, an owner might consider negotiating with one or more, asking workers if they'd be willing to forgo the day or week in return for something else. "Maybe you can throw in something extra ... let them come in late or take a half a day off, something that everyone in the office doesn't have to know about _ a thanks for helping me out," he said. Leigh Branham, owner of Keeping The People Inc., an Overland Park, Kan., human resources consulting firm, suggests drawing employees into the problem-solving process. "Have a meeting with them, and ask how is the work going to get done?" Branham said. "Create a sense of ownership among the employees. Each person has a responsibility." He also suggested, where possible, hiring temporary workers to fill in. Or, if it's not entirely necessary for an employee to be physically present in the office, if one or more of the vacationing staffers will agree to be available by cell phone for help or consultations. This kind of approach to the problem can help employees feel more valued, Branham said. "It's a chance to be more a part of the team." But the bigger question is how to make sure vacation conflicts are kept to a minimum. HR consultants uniformly advocate creating a written vacation policy, one that ideally is part of a broader employee handbook. Policies and handbooks serve an important purpose _ the more that staffers understand what's expected of them, and what they can expect to do, the better off the workplace will be. A vacation policy needs to spell out not only how many days an employee is entitled to take and at what point in the staffer's tenure they can be taken _ for example, how many days a new employee can expect to have in the first six months or year, and at what point is he or she entitled to a full week, two weeks, three weeks, etc. It also needs to specify how far in advance time off needs to be scheduled and how conflicts will be resolved, whether by seniority or on a first-come, first-served basis, or a mixture of both. An owner also needs to consider whether time off includes sick days as well as vacation time and personal days. Owners who need help in putting a policy together might talk to other business owners in the same industry or the same geographic area, to see what the norm is. Branham also suggested, "Get a good benefits person to give you some guidelines." As they formulate a policy, owners need to remember that vacation and time off policies can help make companies more competitive in a tight labor market. Businesses that can't afford benefits like health insurance might want to consider more flexible time-off policies _ keeping in mind that increasingly, workers are looking for a better work-life balance. A good candidate for a job might be turned off by a vacation policy that's too stingy or too rigid. Still, there are some businesses that have to hold the line on vacations _ for example, restaurants in popular beach or resort areas. In such cases, employees need to know even before they're hired that time off is likely to be limited at certain points in the year. Wilson noted that his company found as it grew that the last week of the year was one of the busiest because of tax law changes that were taking effect Jan. 1. So Employco's vacation policy had to be adjusted to let workers know that no one could take time off that week. <>

Summary of Health Spending Accounts

I found this article which gives a good little summary of available options for health care spending accounts (at the very least, it defines the acronyms):

What's an FSA?

Biotech Week via NewsEdge Corporation : 2007 JUL 11 - (NewsRx.com) -- Health insurance is confusing enough. And then we're expected to understand all of those acronyms. What's an FSA? An HRA? An HSA? David Ewers, Boise district manager for PacificSource Health Plans, thinks it's important to talk to people in plain English. "How can you make good choices if you don't understand your options?" he asks. Today, many employers are encouraging their employees to take a more active role in managing their own health care -- and their own health care costs. That trend has led to a whole new array of health care plan options, along with a new set of acronyms. Such consumer-directed plans help employers control healthcare costs while giving employees more control over how their healthcare dollars are spent. Plans vary but all consumer-directed plans include a low cost, high deductible Preferred Provider Organization (PPO) plan plus a healthcare spending account. Among these spending account options are Flexible Spending Accounts (FSAs). FSAs let employees make pre-tax contributions to pay for dependent health insurance premiums and such foreseeable out-of-pocket healthcare expenses as unreimbursed medical expenses, dental and vision care and prescriptions. These plans offer tax savings for both employees and for employers. Health Reimbursement Arrangements (HRAs) are similar to FSAs but employer contributions to employee accounts are not taxable and funds may be rolled over from year to year. Health Savings Accounts (HSAs) may be funded by either or both employers and employees and, again, there are tax advantages for both. Ewers says it's worth wading through the sea of acronyms to get the most out of your health insurance. Don't be afraid to ask questions and you'll enjoy all the benefits your insurance plan has to offer. <>

Disappointing state of affairs for the U.S.

I hate to say it right after the 4th of July festivities, but this disappoints me to no end. Have we priced ourselves right out of the US car market. It is hard to find a decent American made new car for under $25,000. If China is able to cost effectively build a quality auto and sell it here for $10,000-$20,000 this could be the beginning of the end for US auto manufacturing (actually may have passed the beginning already). Quality issues including numerous recalls plague US auto manufacturing. Sadly, one of my last two auto purchases happened to be my first foreign auto purchase. I was looking for a low cost, quality, gas miser car. The model I was looking at from Ford was riddled with recalls, Chevy's option was poor all around, I ended up with Hyundai and it has given me 135,000 almost trouble free miles. Chrysler, Ford, GM lets step it up a bit...I want to buy American but with limited money, I have to get the most bang for my buck.

Anyways, read this article and comment...

Chrysler, China's Chery sign deal to export Chinese cars to United States

Associated Press WorldStream via NewsEdge Corporation : BEIJING_The next Made-in-China export bound for the United States: cars. Chrysler Group signed a deal Wednesday with China's biggest automaker, Chery, to launch a low-cost production venture that could export the first Chinese-made cars to the United States. The first cars will reach Latin America or Eastern Europe within a year and models should be exported to North America and Western Europe in 2 1/2 years, said Chrysler CEO Tom LaSorda. "As part of the Chrysler Group's global transformation, we are finding new ways to bring vehicles to market faster, more efficiently and with less cost," LaSorda said at a signing ceremony. The alliance offers 10-year-old Chery Automobile Co., based in the eastern Chinese city of Wuhu, an opportunity to realize its longtime ambition of entering the U.S. market. Chinese automakers already export, mostly low-priced trucks and buses shipped to Africa and other developing markets. But analysts say they lack the technology to meet U.S. and European safety and pollution standards on their own. Chery CEO and Chairman Yin Tongyao said the deal will help Chery improve its skills as it tries to expand foreign sales of its own models. "Chery is still young, so we should learn from Chrysler and improve our own competitive edge in the near future," he said, calling LaSorda "my teacher in the automotive business." The first Chrysler-Chery export will be based on Chery's A1 compact and sold under the Dodge brand, LaSorda said. A 1.3-liter version of the A1 retails in China for 53,800-59,800 yuan (US$7,100-US$7,900; €5,200-5,800). Export prices have not been announced. The companies will jointly develop future models, probably with Chrysler styling on a Chery platform, LaSorda and LaSorda said he had "no concerns at all" about convincing U.S. consumers that Chinese-made cars are safe at a time of warnings about seafood, tires and other goods imported from China. Chrysler will work closely with Chery to ensure the cars meet U.S. and European safety and emissions standards, he said. The agreement follows DaimlerChrysler AG's agreement in May to sell 80.1 percent of money-losing Chrysler to U.S. private equity group Cerberus Capital Management, freeing the parent company to focus on its truck and Mercedes luxury car lines. Major automakers have been aggressively expanding production in China, which overtook Japan last year to become the world's No. 2 vehicle market after the United States. But until now, most has focused on meeting red-hot local demand, which has made China a bright spot for U.S. automakers amid lackluster sales at home. Others also have announced plans to export Chinese-made cars to the United States but none has yet made it to market. A Chinese automaker, Changfeng Motor Co., said in January it hoped to sell sport-utility vehicles in the United States within two years but has given no details. Chery had a deal with American entrepreneur Malcolm Bricklin to sell cars in the U.S. market but that fell through. Japan's Honda Motor Co. has exported Chinese-built Jazz subcompacts to Europe since 2005. Last year, Chery reported sales of about 310,000 cars, with 40,000 of those exported. Its target this year is 390,000 cars, including 70,000 units sold abroad. The company assembles vehicles with partners in Iran, Malaysia, Russia, Ukraine, Brazil and Egypt. It announced plans in March to open a factory in Uruguay _ its first in Latin America _ with an Argentine partner. Total Chinese passenger car sales rose 37 percent last year to 3.8 million, while total vehicle sales rose 25.1 percent to 7.2 million, according to the China Association of Automobile Manufacturers. LaSorda said Chrysler picked Chery after looking at potential partners in Europe and Asia. "We researched the world and found they were the best," he said. Asked whether Chrysler was worried that the alliance might help Chery develop into a competitor that might threaten its U.S. partner, LaSorda told The Associated Press, "No, we're not. With us or without us, they're going to grow. So the question is, 'Are you going to go with a winner?'" The venture's production could reach several hundred thousand units a year, LaSorda said. "This is the start of a very long relationship between Chrysler and Chery," he said. ___ On the 'Net: Chery Automobile Co. (in Chinese): http://www.chery.com.cn Chrysler Group: http://www.chrysler.com <>

Mistakes that Kill Small Business

Another interesting list I found on bottomlinesecrets.com.  As an accountant, I'll try not to be offended by Mistake #3...just kidding...accounting controls are the key.



Bottom Line's Business Secrets

Dumb Mistakes that Kill Small Businesses And what you can do instead Ruth King BusinessTVChannel.com Published: July 1, 2007 Y ou have a strong work ethic, a solid business plan and a great reputation in your field. Your small business ought to be a success. Yet a single seemingly minor mistake might be all it takes to make a thriving young company go belly up. Fatal small business mistakes often can be avoided, but only by business owners who recognize the danger in time. Common errors that can doom small companies...



Mistake 1: Relying too much on one customer. New businesses sometimes start out with just one or two clients. When these clients provide all the work the business can handle, the customer list doesn’t expand. After all, why search for new clients when the dance card is already full? However, short client lists increase the odds of disaster. Small companies often collapse when a customer that accounts for 50% to 100% of their income decides to use another supplier... eliminate a product line... or handle a previously outsourced function in-house. What to do: Continue to search for additional customers even if one or two big clients already give you all the work your business can handle. If necessary, add an employee. Avoid letting any customer make up more than 25% of your revenue.



Mistake 2: Losing key employees to competitors. A small business might have only a few employees. It can be a crippling blow if one or two of the best quit to join a rival. Not only are the company’s most productive people now working for the other team, but the owner often must do the work that these former employees would have done. On top of that, he/she has to hire and train replacements, all of which can distract him from leading the company. The departed employees even might take some of the company’s best customers with them. Example: Several top-producing employees of a small Nevada mortgage brokerage company were hired away by a new rival that was attempting to enter the sector. The mortgage brokerage owner could not find adequate replacements and was forced to scale back his operations despite surging demand. What to do: To keep your employees loyal, do everything in your power to keep them happy. Remember to praise employees and thank them for their efforts. Keep the attitude of the office upbeat. An enjoyable working environment is at least as important for employee retention as hefty salaries.



Mistake 3: Trusting a bookkeeper too much. Even an honest-seeming bookkeeper could be an embezzler. Example: A Georgia contracting company hired a grandmotherly bookkeeper whom everyone loved -- until they learned that she had cooked the books and forged $100,000 in checks. What to do: Maintain personal control over your company’s money whenever possible. Do not give a bookkeeper check-signing privileges. Have bank statements sent to your home so you see them before your employees do. Each quarter, print out lists of receivables and payables and scan them for unusual entries. Divide any financial tasks that you can’t handle yourself among several employees so no one employee can steal without another noticing a problem.



Mistake 4: Turning a hobby into a business without understanding what’s involved. Coin collectors often dream of owning coin shops... skilled amateur photographers hope to open their own studios. Unfortunately, many people turn their hobbies into small businesses without first considering the time and money required, the risks and their lack of practical business skills. Example: A woman interested in Native American jewelry opened two jewelry stores -- one in Colorado, the other in Arizona. She had a great eye for jewelry, but she had no knowledge of the local markets... didn’t know how to write a business plan... and had never worked in retail. Both shops failed. What to do: Before launching your business, work for someone who has a comparable business so you can learn about the field. (This business either should be a few towns removed from where you intend to start your business or have a slightly different focus so that you won’t later be in direct competition.) Try to master mundane back-office tasks that are unfamiliar to you, such as balancing the books and negotiating with distributors and suppliers. To reduce your risk, try to launch your business part-time before leaving your current job. This means working very hard for a while, but it’s better than taking the leap without a safety net.



Mistake 5: Having a relationship with just one bank. Most small businesses depend on loans and lines of credit to get them off the ground and avoid cash-flow shortfalls. When a business builds a relationship with only one bank, that credit can dry up if the bank’s policies or management change. What to do: Try to do business with at least two local banks so they get to know you and believe in your company.



Mistake 6: Thinking you’ll never get sick. A long-term health problem, even if it is not life-threatening, could mean the demise of your business, particularly if it is a sole proprietorship. Example: A Georgia hairdresser broke his arm in a motorcycle accident and could not cut hair for more than a month. He contracted with another hairdresser to cut his clients’ hair for the time his arm was in a cast. Had his customers gone elsewhere, his business might not have recovered. What to do: Do not work yourself so hard that your health deteriorates. Quit any risky hobbies. Consider signing an agreement with a friendly, respected competitor to look after each other’s businesses in the event of extended health problems. Make sure this agreement includes a promise not to poach customers. If you can afford it, buy disability insurance.



Mistake 7: Failing to share the workload with employees or partners. Some small business owners find it psychologically difficult to give anyone but themselves important assignments. Their unwillingness to accept assistance limits their companies’ growth, and eventually they burn out. What to do: If your current employees can’t handle the work, hire or train employees who can.



Mistake 8: Working with unstable suppliers or distributors. When a small business’s supplier or distributor has problems, the small business itself has problems. Example: A California writer lost her stream of income and her entire inventory of books when her book distributor went bankrupt. What to do: Work with multiple suppliers and distributors whenever possible. Watch for signs of financial problems in these companies, such as bounced checks or slow-to-arrive payments. Ask your lawyer to look over your contracts with distributors to make sure that you will still own your products if the distributor goes bankrupt. For more information about protecting your small business: www.smallbusinessadvocate.com... www.sbresources.com... www.startupnation.com.

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Company Loans to Business Owners

Here's another article relevant to this blog from BottomLineSecrets. It discusses options that business owners have to get their hands on cash with tips on how to structure it for tax purposes. This article was titled and written by:

Make the Most of a Loan from Your Company

Albert Ellentuck, Esq., CPA
King & Nordlinger, LLP

Business owners may find themselves short of cash while the company has ample liquid reserves. If that’s the case, it might be tempting to borrow money from the business.

Such tactics may make sense, especially if the alternatives are taking a bank loan or running a credit card balance. But proceed cautiously to avoid tax traps and other dangers...

DEFEND AGAINST DIVIDENDS

Avoid simply transferring funds from the company’s bank account to your own, making a mental note that this is a loan.

Trap: If the IRS examines your personal or business records, the transfer might be considered a dividend.

Result: The entire amount could be taxable income to you. A $50,000 “loan,” for example, could add $50,000 to your income for the year.

Moreover, dividends are not deductible for the company. If you run your business as a regular C corporation, the amount of the transfer could be subject to both personal and corporate income tax.

Strategy: Any loan between a company and an employee (especially if the employee is a shareholder) should be formalized.

The loan document should state an interest rate, repayment terms, and procedures to be followed in case of default. If you’re the borrower, adhere to the terms of the loan.

Added protection: To defend against a possible future charge that the transfer was a dividend, record the loan in your corporate minutes. Make a note to the effect that a loan is being made to a corporate executive to relieve personal financial pressures and thus facilitate performance of business-related responsibilities.

A loan will look more realistic if some interest is charged, even at a below-market rate, and if that interest is paid on schedule.

LACK OF INTEREST

As mentioned, a company-to-shareholder loan will be on safest ground if interest is charged and paid. For the best tax outcomes, such interest will be at a market rate -- it will be treated as a loan rather than a taxable gift or dividend.

However, you might prefer to pay a below-market rate of interest, or no interest at all.

Tax treatment: With few exceptions, interest in such cases will be imputed by the IRS on loans between employers and employees.

Example: Walt Smith is the 100% owner of ABC, Inc. He borrows $50,000 from the company, interest free. At the time of the transaction, the applicable federal rate (AFR) published by the IRS is 4%.

Result: Imputed interest of $2,000 (4% of $50,000) will be included in Walt’s income each year.

Walt might be able to take an offsetting $2,000 deduction... but he might not. If he uses the loan proceeds for personal purposes, other than acquisition of a residence, no interest deduction will be allowed. If he uses the money for investing, interest deductions will be allowed only if Walt has taxable investment income to offset.

Below-market loans: Instead of an interest-free loan, Walt might have agreed to pay, say, 2% interest to his company. In that case, the loan is two percentage points below the AFR and the annual imputed interest would be $1,000 (2% of the $50,000 loan amount).

LOW-COST DEBT

Suppose that Walt uses the proceeds for personal expenses. He will owe tax on $2,000 worth of “income” from imputed interest and get no tax deduction. Even so, such a transaction might be advisable.

Reason: Assuming an effective 40% tax rate (federal, state, local), Walt would owe $800 per year in tax on the $2,000 of imputed income.

If Walt borrowed the same $50,000 from a bank, in today’s interest rate environment, he might have had to pay 8% interest, or $4,000 per year.

Even worse: Putting $50,000 worth of debt on credit cards would probably have cost much more interest.

Bottom line: Using a no-interest or low-interest loan from your company might be the best way to get your hands on needed cash.

Try to start repaying the loan as soon as possible. If no repayment has been made after several years, the transaction may start to look like a dividend, with the undesirable tax treatment described above applied retroactively.

EMPLOYING THE EXCEPTIONS

In some situations, no-interest or below-market loans between employers and employees are exempt from the imputed interest tax rules.

Exception 1: Loans that total no more than $10,000 won’t trigger imputed interest.

Exception 2: Relocation loans also may be exempt from these rules.

Example: XYZ Corp. moves its headquarters from Wyoming to Arizona. Beth Jones, the sole shareholder of XYZ, also moves to a new home in Arizona.

XYZ makes Beth an interest-free loan to help her buy her new home. No interest will be imputed.

Required: To avoid imputed interest, the loan must be secured by Beth’s new residence. The note will say that the house will be sold in order to pay off the loan, if necessary.

The relocation must involve a move of at least 50 miles. The loan must not be transferable (the company can’t sell the note to another party) and must oblige the borrower to perform future services (the borrower promises to work for the company).

In addition, the rules state that the borrower must certify to the employer that he/she expects to itemize deductions each year the loan is outstanding (see Reg. Sec. 1.7872-5T[c]).

Exception 3: In some cases, the imputed interest rules can be avoided on bridge loans that are used to buy a new home while an existing residence is on the market.

Required: All the above conditions for relocation loans must be met. In addition, the loan agreement must state that the loan will be repaid in full within 15 days after the sale of the old home.

The amount of the loan can’t be more than the borrower’s reasonable estimate of the equity in the old home. Moreover, the old home must be sold rather than converted to business or rental property.

Strategy: For a relocation or bridge loan, the borrower should open a separate bank account for handling the borrowed funds. Then the loan proceeds can be traced to the purchase of a new residence, strengthening the case for exemption from the imputed interest rules.

Sources to Borrow From in a Pinch

This is another article from the BottomLineSecrets newsletter I receive. Those of us that have gone through certain life challenges (divorce, illness, etc.) should find these useful. Problem is, when the crisis strikes, have to think clearly enough to get through without committing financial suicide. This article was titled and written by:

How to Get Cash in a Flash

Madeline Noveck, CFP

Novos Planning Associates, Inc.

Suppose life throws you a curve ball and you need money fast. Where can you get the cash? Options -- and traps to watch out for...

LOW OR NO COST

1. Ask your employer for an advance. The terms may be informal or written as a promissory note. This option works best when the need for immediate cash is very small and the boss is approachable.

2. Borrow from your relatives. This quick fix comes with emotional potholes. If you don’t repay the money, there may be resentment from the lender, as well as from other relatives who may feel slighted or jealous.

What to do: Use a formal promissory note stating the interest rate and repayment terms.

Trap: Without such a written note, the IRS may bar the lender from writing off a bad loan on grounds that it was a gift.

Caution: Such a loan doesn’t have to bear interest. But if it does, the lender must report that interest as income. If the loan exceeds $10,000, and the interest is below the applicable federal rate (AFR) -- currently just under 5% -- the lender must report not only the actual interest, if any, but also the “imputed interest,” which is the difference between the actual interest and the AFR.

More information: At the IRS Web site, www.irs.gov, type “applicable federal rate” into the search box.

RETIREMENT ACCOUNTS

3. Borrow from your 401(k). If your plan allows it, under federal law, you can borrow up to 50% of your vested account balance or $50,000, whichever is less. You usually have up to five years to repay the loan.

Advantages: You can’t be rejected for the loan -- you may only need to make a phone call to the plan administrator or complete a short loan form... the interest rate, set by the plan, will be relatively low -- usually a couple of points above the prime rate, currently 8.25% (this is low compared with credit card rates, which can be up to 25%). The interest you pay goes back into the account.

Disadvantages: The money borrowed diminishes what could be saved for retirement... if you leave the company before repaying the loan, you must pay it back -- any outstanding balance will otherwise be treated as a taxable distribution (and subject to a 10% penalty if you’re under age 59½).

4. Tap your IRA. Pledging an IRA as collateral for a loan or “borrowing” from it is treated as a taxable distribution (subject to a 10% penalty if you’re under age 59½). But you can use money from your IRA for 60 days, tax and penalty free.

Big danger: You must replace (redeposit) the money in any of your IRA accounts within 60 days, or pay tax on it. Whatever isn’t put back becomes taxable as ordinary income.

Caution: You can make only one such withdrawal/redeposit, called a rollover, within a one-year period.

COMMERCIAL ALTERNATIVES

5. Borrow against your life insurance policy. If you have a cash-value life insurance policy (whole or universal life), you can borrow against the amount accumulated in your account. Just call your insurance agent or insurance company to receive a check within 48 hours to two weeks.

Borrowing limit: The cash value in the policy.

In today’s market, the annual interest rate on such a loan is about 7%, but many companies will reduce the dividends they credit to your account for as long as you have the loan -- in effect, upping the interest rate. Usually, you can repay funds when and to the extent you choose, but if payments don’t at least cover interest, the cash value of your policy continues to be further depleted because the interest not paid is subtracted from the cash value.

6. Use a margin account. Margin borrowing allows you to leverage securities you hold at a brokerage firm to access a convenient line of credit -- using checks issued by the firm to access your line or by receiving a broker’s check (often the same day you ask for it). You can even have the funds wired to your bank account. All you need to do for this kind of borrowing is sign a margin account agreement.

Limit: 50% of the current market value of a stock... 90% for Treasury and agency bonds... 70% for corporate bonds... and 60% for municipal bonds. Some securities (e.g., equities trading below $3 a share) are excluded.

Interest rates, which are based on the broker call rate (the broker’s cost of money), vary and the more you borrow, the lower the interest rate.

Example: Fidelity’s rate for borrowing less than $10,000 is currently 11.075%, but borrowing $500,000 or more has a 6% rate.

Note: Interest on margin accounts may be tax deductible as investment interest by those who itemize deductions. You must use the money to buy or carry investments, and you must have investment income at least equal to the investment interest. You must also not be borrowing against tax-exempt securities.

Caution: If the value of the securities falls below a certain level while your loan is outstanding, you’ll get a margin call -- a demand from a broker to provide money or securities to bring the value of the account back to the required level. You’ll have to sell some of your holdings to cover the shortfall if you don’t find other money to pay down the margin debt.

7. Get a home-equity line of credit (HELOC). Your bank will approve you for a specific amount of credit. Many lenders set the limit on a HELOC by taking a percentage of a home’s appraised value and subtracting the balance on the existing mortgage, if any. The process can take a week or more to arrange, but once the line is in place, you can write checks against it.

HELOCs typically use variable interest rates based on the prime rate (current HELOC rates are around 7.5%). Look for a lender that will waive all costs of establishing the loan, such as an application fee, an appraisal fee and closing costs.

HIGH-COST OPTIONS

8. Take a cash advance from a credit card. Drawbacks: Very high interest rates -- rates for advances typically range from 20% to 25%, in contrast to the average rate on credit card purchases of around 16% to 17%. In addition, cash advances usually carry an up-front fee of 2% to 4% of the amount advanced.

9. Borrow from a pawnshop. Pawnshops are in the business of making short-term, small-money loans, with personal items used as collateral. A pawnbroker will appraise your jewelry, small appliances, musical instruments or other items and typically lend 50% of the retail value. Interest rates and fees for these loans are state regulated, but the term of the loan is usually 30 days to several months and the fees are generally high.

Example: New York pawnbrokers have a collateral loan period of four months, and the interest rate is 4% a month, which means an annual percentage rate (APR) of 48%. There may also be a service charge -- the maximum charge for loans between $50 and $100 is $3 (loans above $100 are $5). If you don’t pay back on time, your collateral can be sold.

10. Take a “payday” loan. If your employer won’t give you a wage advance, consider a payday or “fast cash” loan.

These loans (offered at payday loan stores and at such sites as www.wegivecash.com, www.ordercashnow.com and www.credit.com) are popular because they’re easy and quick to arrange -- you can get funds in as little as one hour.

These loans don’t require a credit check -- they’re based on just a few criteria, such as the applicant’s monthly wages (usually a minimum of $1,000). The maximum loan amount is between $500 and $1,500, and the loans are for short periods, usually one to four weeks.

These loans are pricey -- finance costs (fees) run from $25 to $45, regardless of the size of the loan. Sounds reasonable? It’s not. Charging $45 for a two-week loan is the equivalent of $1,170 for a year. If you borrowed $300, that’s an APR of 390%!

Household money saving secrets

I receive this email newsletter from bottomlinesecrets.com. Had a nice summary on cost cutting and cost controlling moves for any household (including mine). This articles title and authors are:

Money-Saving Secrets from America's Cheapest Family

Steve & Annette Economides

The HomeEconomiser Newsletter

Many people think it is stressful to keep an eye on spending, but being frugal reduces the stress in our house. Unexpected financial setbacks, which rarely occur, can be remedied without major lifestyle changes. Our family members have learned to work together toward common goals. Our favorite strategies...

Plan and save in advance for all expenses. We divide our checking account into 20 subaccounts on paper -- though it could be done using a computer -- to save for all regularly occurring household expenses, such as mortgage and auto insurance payments, as well as such categories as recreation, gifts, home repair, savings and even pets.

Every other week, we spend two hours recording our expenses and dividing our total paycheck into the subaccounts. For instance, we anticipate the cost for gas and maintenance on two cars is about $2,700 a year, so we set aside $103 per paycheck for those needs. Money in a subaccount that is not completely spent accumulates with each paycheck. This way, it's never a financial strain when the car needs new brakes -- we have the money saved to cover it.

This system takes discipline, but it gives us peace of mind. We know exactly how much money we have to spend in each category. No more robbing Peter to pay Paul.

Plan how to spend large sums. People often squander large payouts, such as work bonuses and tax refunds. Instead, determine the most effective use for the money before it comes in. For instance, when we were paying off our first house (within nine years), we decided that extra money would be divided as follows -- 30% to extra payments of our mortgage principal, 30% to retirement and other savings accounts, 20% for house projects, 10% for charitable giving and 10% for recreation. We always allow some money for fun while working toward a goal. It makes it easier to stick with the plan.

Budget and pay bills together as a couple. Many financial experts suggest that spouses keep their money separate. We don't. Working together has built incredible unity in our marriage, as we have worked toward and accomplished our financial goals. We both know exactly where we stand financially. There are fewer arguments and more determination to persevere.

Avoid the ATM. This cash usually evaporates as quickly as ice on a hot griddle. Instead, to take control of the most common areas of overspending -- food, recreation and clothing -- we withdraw predetermined amounts in cash from each paycheck. Putting a set amount of cash into three separate envelopes minimizes overspending. When the cash is gone, the spending stops. It is amazing to see how easy it is to get control of your money this way.

Plan dinner menus for the coming week. This habit will encourage you to eat dinner at home more often, rather than at restaurants. With practice, a weekly menu can be created in as little as 15 minutes. You will make fewer trips to the grocery store and will save time and money. We have a list of more than 90 different dinner meals that we rotate from month to month. A favorite resource is The Good Housekeeping Illustrated Cookbook, which includes pictures of many of the dishes.

Give up your "sacred cows" for a month to reach your goals. Sacred cows are the little extravagances that you refuse to forgo even when you're under financial pressure. If you're comfortable enough without your sacred cows for 30 days, consider giving them up for good. For many people, these include premium cable channels, bottled water and Sunday brunches at restaurants.

We had a friend in financial trouble who insisted on continuing his newspaper subscription for $30 a month. He couldn't imagine living without it. We challenged him to give it up for 30 days, just to see what happened. When you let go of something, you often find a creative way to meet that need. In this case, our friend discovered that someone at his office brought in the paper each day and left it in the break room.

Make a game of being thrifty. Find a creative solution that costs less than the obvious one.

Example: We saved $400 for a dishwasher. After consulting Consumer Reports, we called several appliance stores in our area looking for a particular brand and model. We discovered that most large distributors have "scratch and dent" and discontinued units, so we called more stores looking for these deals. We struck pay dirt at Maytag and walked out of its downtown warehouse with a brand-new, $800 stainless steel dishwasher (in an open box) for $400. We stayed within our budget and got a much better quality dishwasher than we expected.

Keep your eyes open -- deals are everywhere. Most Sam's Club warehouses have discount/closeout areas in the back of the store. We always check there for deals. One day, we found a twin pack of Xerox Toner cartridges for our copier. They retail for $130 each. We have bought them on eBay for as little as $60, but Sam's Club had discontinued this particular item and marked it down to $10. Of course, we scooped them up. The deal got even sweeter when we remembered that inside each box was a certificate for a $5 rebate when we mailed in our empty toner cartridge (postage paid).

Decide on your "time versus money" threshold. If one phone call will resolve a small error on our bank statement, we go for it, but we're always careful to balance our drive to save money with our time for family and friends.

Our rule: If the resolution of an issue can't yield us at least $10 to $15 per hour of our time, then it probably isn't worth pursuing.

What Not To Bring To An IRS Audit

I came across this little article in a sample issue of Bottom Line magazine titled, 'What You Should NEVER Bring to an IRS Audit'. The article states that the most common audit mistake is to bring (and provide) to the auditor past years tax returns. Doing so, the article says, expands audit risk because you are giving the auditor more to look at and thus allowing him to see patterns in income and expenses that might exist. People often supply past returns because the audit notice says to.

Apparently there is an IRS rule that states that you are required to provide only the information which pertains to the tax year being audited unless there is an issue with carryover items or the like.

I looked at a couple publications briefly on the IRS webpage (Pub #1 and #556) and I didn't come across anything to support this. I'll have to look into it further because I would like to know for certain if this is the case (not that I'm planning on getting audited, but it is always helpful to know what the playing field is like just in case). If anyone has an immediate answer, please comment.